Detail Cantuman

Abstract Social capital can serve as informal governance in
weak investor-protection regimes. Using hand-collected data
on entrepreneurs’ political connections and firm ownership,
we construct several original measures of social capital and
examine their effect on the performance of entrepreneurial
firms in China after their initial public offerings. Political
connections or a high percentage of external investors tend to
enhance firm performance, but intragroup related-party
transactions commonly lead to performance decline. These
forms of social capital have a strong influence on the performance
ofChinese firms,whereas formal governance variables
such as board size or board independence have little effect.
Although social capital may serve as an informal governance
mechanism and effectively substitute for formal governance
mechanisms in an emerging market, this role of social capital
raises several ethical concerns, notably the development of
rent-seeking and crony capitalism.
Keywords Post-IPO performance  Social capital 
Agency theory  Entrepreneur  Political connection  China